Dear David,

I see realtors like you offering a free market evaluation, is that the same as an appraisal?

– CURIOUS

DEAR CURIOUS: A free market evaluation (also known as a Comparative Market Analysis or CMA) and an appraisal are two distinct services that come into play at different points in the buying and selling process. Because their variations are not widely understood, I often hear the terms used interchangeably.

A CMA is a study completed by a Realtor, to identify the price range in which a given home is likely to sell. To establish this range, the Realtor will cross-reference similar properties that have recently been listed or sold in the surrounding area. From a consumer’s point of view, a CMA provides a good baseline comparison of market values in the neighbourhood and can be useful in helping to manage expectations.

Because a CMA is often completed before the agent has had a chance to see the property in person, it tends to be based on location, square footage and the number of bedrooms and bathrooms in the home. If the agent is not familiar with the house, the report won’t take into account the condition of the home (whether good or bad), the quality of the finishes, or any upgrades that have been completed.

By contrast, a real estate appraisal is a highly specific report, done by an accredited appraiser. An appraisal takes the specific characteristics and condition of a home into account, noting everything from the square footage and number of bedrooms and bathrooms, to unique features such as a finished basement, pool or accessory building.

When a buyer purchases a property, their bank or mortgage lender will likely request an appraisal to determine the precise value of the home. Often, the appraisal is a final step that must be completed in order for the mortgage to be finalized.

When I am asked to provide a market analysis, CMA, or an appraisal, I always ask about the purpose of the report and the motivation behind the request. If a client is looking to refinance their home, a CMA that I provide will not be appropriate. If there is a marriage breakdown and one spouse wants to purchase the home from another, I will generally steer them towards an independent appraiser (or two…or three) and advise that they pay the fee, then average the assessments in order to establish an unbiased opinion of value.

PRO TIP: Market evaluations are subjective. As such, they can be vastly different, and some variations may be motivated by an assessor’s desire to win business. Listings that are valued incorrectly tend to sit for extended periods of time, even in today’s hot market. If an evaluation sounds too good to be true, make sure the Realtor can back up their numbers. #AskDavid #Advice